11/03/22

ASIA: China bars mainland brokers from promoting SPAC deals in Hong Kong.

As published on businesstimes.com.sg, Friday 11 March, 2022.

China's securities regulator has barred the country's investment banks it regulates from acting as promoters of blank-cheque firms in Hong Kong, 3 people with knowledge of the matter said, cutting off a potentially lucrative business.

The China Securities and Regulatory Commission (CSRC) has decided to take the step, which was communicated to the mainland investment banks earlier this year, due to concerns over the risks associated with those vehicles, the sources said.

While promoting the deals will be off-limits, the investment banks will be allowed to work as advisers on special purpose acquisition company (SPAC) transactions under Hong Kong's new rules for such listings, said the sources.

The move comes as China is set to unveil final and tougher rules for offshore capital raising by domestic companies, as part of which the regulators are also seeking to subject investment banks to extra scrutiny.

Mainland commercial banks-affiliated institutions, regulated by the China Banking and Insurance Regulatory Commission (CBIRC) have been given the greenlight to be promoters, the sources said, giving them a competitive edge.

Chinese brokerages have been lobbying the CSRC to change the rules to allow them to act as promoters as well, one source said. In Hong Kong, promoters are the same as sponsors in other markets in that they establish the SPAC and own promoter shares issued by the blank-cheque company.

Promoters pay much less for their shares, which are a different class of stock than those issued in the initial public offering (IPO), compared with the price paid by public investors, allowing them to lock in higher profits later.

In Singapore, the current rules don't bar investment banks from becoming SPAC sponsors, but bankers say the regime calls for such vehicles to be backed by experienced and quality sponsors, and is not likely to appeal to investment banks and brokerages.

In Hong Kong, the asset management arms of2 commercial banks, Agricultural Bank of China International (ABCI) and China Merchants Bank International (CMBI) have acted as SPAC promoters, showed exchange filings.